I try to read a variety of different non-security resources each week, to stay in touch with both technology and startup culture. Of course, we at Securosis are kind of a startup. We are small and we’re investing significantly in software (which is late and over budget, like all software projects). But we choose not to deal with outside investors and to have reasonable growth expectations, since ultimately we do this job because we love it. Not because we’re trying to retire any time soon.
It is instructive to read stuff from former operating folks who find themselves advising other startups. Mark Suster, who is now a VC, has a good post on TechCrunch about One of the Biggest Mistakes Enterprise Startups Make. He’s talking about the hazards of trying to introduce an enterprise product without a professional services capability. Ultimately any startup must be focused on customer success, and drop shipping a box (or having them download software) may not be enough.
The line of reasoning goes, “Services businesses are not scalable and the market won’t reward this revenue so make sure that third-parties do your implementation or clients do it themselves. We only want software revenue.”
This is a huge mistake. If you’re an early-stage enterprise startup services revenue is exactly what you need.
In the security business this is a pretty acute fear. Let’s call this ArcSight-itis. Customers can be very resistant to technology that requires more investment in services than in software. The old ERP model of paying X for software and 4X for services to make it work is pretty much dead. Thus the drive to make things easier to use, requiring less services. And they don’t want to revisit their experience with early SIEM offerings.
But as with everything, there is nuance. Ultimately customers want to be successful which is why they bought the product in the first place. So if customers left to their own devices can’t get quick value from any technology investment, then who’s the loser? Everyone, that’s who.
Mark’s point is that for startups in emerging markets, customers don’t know what to do with the technology. They haven’t done the integration to provide a whole product (yes, break out Crossing the Chasm if you don’t know what I’m talking about). And the channel doesn’t have the expertise to really support the customer. So the startup needs to provide that expertise.
Even better, services can goose revenues to partially cover costs while the software business matures. Over time, license revenues (or increasingly services/SaaS revenues) are far more highly valued. But Mark’s point is that if smaller companies selling an enterprise product don’t have the capability to integrate and service the product, they may not be around long enough for the software to mature.
Of course there are exceptions, and that is why he prefaced everything with the ‘enterprise’ term. If a mid-market focused offering requires significant services it’s a epic fail. But if the Global 2000 is the target market, recruit good services folks early and often.